IMac 8,1 won't boot after Lion Install.

Hey guys,
I have an iMac8,1 with a 2.4GHz Intel Core 2 Duo that I just installed Lion on.
It previously had Leopard on it, but after shutting it down to boot from the USB stick that I had made on my MacBook, I pressed alt to show the device selection menu. There were no options except EFI boot with an orange drive, which I took for the Lion stick that I had made. Installing Lion went without a hitch. I formatted the drive that Leopard was on and did a clean install. After it was finished, I set up Lion and set up a Boot Camp partition so that I could install Windows 7 side by side with it. I booted into the device selection menu (holding down alt/option while booting) and it showed me a completely blank screen. No Macintosh HD, no EFI boot, no Windows DVD, nothing.
I put the flash drive back into the machine, and kept restarting it and seeing the same result, until all of a sudden it decided to finally start, and I saw the Apple logo. After a while, though, it became apparent that it was not booting into OS X Lion on the hard drive, but rather the Lion Install.
I have no idea what to do with this machine. It was running extremely slowly before I started trying to fix it, and it didn't make sense to me that a machine with fairly capable specs (I have the same processor and 2GB of RAM on my MacBook and it runs great) would run so catastrophically slowly.
Also, I'm now in Disk Utility running from the Lion USB and it a) sees both partitions and mounts them fine, b) says that "The volume "Macintosh HD" appears to be OK", after Repair Disk c) is unable to fix or verify disk permissions.
I'm at a loss as to what to do. Can anyone help?

If you have backups of all OS X and WIndows data on the internal drive, I suggest you partition it with the default options (GUID partition table, one data partition) while booted from the USB device. Install OS X and test. If you can boot in that configuration, restore your OS X data and then run Boot Camp Assistant, if you wish.
If the above procedure is unsuccessful, the machine has a hardware fault.

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